Jul 152013
 

Earlier today Loblaw Co., Canada’s largest grocery chain announced they will buy Shoppers Drug Mart, Canada’s largest pharmacy chain.

The executive chairman of Loblaw (L:TSE,) Galen Weston, said this would create opportunities for brands from the two chains to appear in each other’s stores, and that the merger would give Loblaw greater buying power for health and wellness products. Not surprisingly Shopper’s (SC:TSE) stock price shot up 24% today which puts the value of the company very close to the $12.4 billion that Loblaw Co. is willing to pay for it. Shoppers own 1242 stores so on average each store is being bought for $10 million. No store closures are planned at this point.

Loblaw shares also went higher today. Normally when mergers are announced the larger company doing the purchasing loses some value in the short term because they are overpaying. But in this case the synergy works so well that both companies are looking to profit from this deal :0) Loblaw says they will save $300 million a year through efficiencies like by introducing their President’s Choice products into Shopper’s stores. Loblaws stock ended the day up $2.58 per share (5.43%) which adds about $725 million to the company’s market cap. The combined premium for both stores value is about $3 billion. So that’s like a 10% annual rate of return :0)

13_07_loblaw_store

I don’t own either company yet, but now I’m thinking about buying some Loblaw because last year the combined revenue of L and SC was $42 billion but with this new merger I think they should be able to make at least 10% more per year. They will also have more buying power to lower their input costs like buying from manufacturers.

Here are some opinions from random people on the internet regarding this merger :)

  • “I hope this means Shoppers prices will decrease with the power of a big supplier through Loblaws. I buy medication that is non prescription, and it usually costs more at Shoppers than other drug stores right now.”
  • A few weeks ago Sobeys purchased Safeway. This week Loblaws purchased Shoppers. I am glad Canadian retailers are getting bigger and stronger instead of letting low life retailers like Walmart steam roll our Canadian home grown ventures.”
  • “Oh good, Galen Weston can control the food that makes us sick and the medicine that makes us healthy.” (this one made me lol)

————————————————————————
Random Useless Fact:
If you started with a dollar and double it every day. In 48 days you’ll have enough to buy every financial asset that exists on the planet, about $200 trillion.

If you enjoyed this post, please consider leaving a comment or subscribing to the RSS feed to have future articles delivered to your feed reader.

  11 Responses to “Loblaw and Shoppers: Retail Giants”

  1. I work for one of the companies as a pharmacist and I can honestly say it blindsided all of us. I believe, and am hopefully correct when i say that I don’t believe there will be many changes to our jobs. Hoping that there will be changes to prices and a greater selection of products for consumers. This will be interesting to follow once the shareholders vote and it becomes official.

    • I hope the only change to your job will be an enhanced benefits package :D Loblaw’s website says their employees can purchase Loblaw stock, and the company will match their contribution by 25%. From what I’ve seen before, friendly takeovers like this is usually beneficial, or at least neutral (no changes,) for the employees.

      • It’d be a good idea to allow SDM employees to access Loblaws stocks. I have my suspicion that this may mean changes for SDM associates or the ‘SDM associate concept’. Each store has an owner who owns any built up equity the store earns over the years of ownership. However, Loblaws pharmacies are corporately owned with an active manager with absolutely no ownership. I believe Loblaws will eventually get rid of the associate concept as it would save the company a lot of money.

        • I didn’t know about that before. I wish more companies used the SDM associate concept to run their businesses :). It sounds like a great program and gives managers the incentive to make their stores better.

  2. The one downside I see to this merger is from a consumer standpoint – More of the same everywhere. If the product quality is good it is okay, but when the quality is bad, it gets hard to find something else when everybody sells the same thing. Currently I find Loblaws and other current company stores (Real Canadian Superstore) expensive. I shop for my food at a Metro store (Food Basics), mainly because of what we buy works out about 10-15% all things compared. From an investing perspective, the companies synergies should make sense, and I will put L on my stock watchlist once again, but I won’t be changing my shopping habits unless pricing becomes more comparable – Cheers.

    • I want to see how they will use those efficiencies :) Shoppers will be able to stack their shelves more cheaply. So will that mean cheaper prices for consumers or keep the price the same so shareholders get a bigger margin. But I think I already know the answer to that by how the stock has behaved after the market heard about this news.

  3. It’s weird because I used to LOVE Shoppers but now I think I did only becasue there was one close to my house. Now that I’ve moved, I almost never go there. I actually had to purposely go recently because I was researching loyalty points for my blog, and discovered that the Optimum Points expire if you haven’t used your card in over a year. I’ve hoarded a lot of points that I didn’t want to go to waste!

    • I like how dedicated you are to your blog, even going out to do research lol. I don’t think I have a card yet because I don’t go there often. Good thing they will be keeping the reward points system :0)

      • They are… sort of. They are ending the program at the end of 2016, but that’s been the case since before Loblaws bought them. Maybe it’ll change?

  4. I heard about this! I’m shocked. I really like Shoppers as it is, so I am hoping that Loblaw keeps the quality up. And the prices, which I also enjoy about Shoppers.

Leave a reply. Email and Website fields are optional.